Real estate in India is still in development phase

Oct 16, 2015
An interview with Mohit Malhotra, Executive Director, Godrej Properties

What are the most fundamental changes in Indian real estate since the last investment cycle?

One fundamental change I perceive is that investors are no longer riding on just market beta, and are relying on the alpha to protect their returns – i.e. choosing the right assets basis location, composition of returns, quality of construction, and most importantly the reliability of the developer and construction risks thereof. Buyers are vexed by shenanigans of developers who haven’t been able to honor the commitments to them. This paradigm shift is leading to a more maturing industry, which would consolidate towards developers with a strong brand and commitment to delivery

How are ‘new’ international investors likely to invest in India? Blind pools, managed accounts, debt funds, equity investments?

While globally, there is a significant rise in investor interest in real estate and specifically towards India, investors are cautious of who manages their money and how is it allocated. Basis lessons from the last cycle, they understand that real estate in India is still in development phase and it is more prudent to rely on developer managed funds rather third party GPs. This trend is witnessed as many LPs have formed fund partnership with developers over last few years

What will stimulate the recovery of the resi market in Delhi and Mumbai? And what are the likely time frames?

An interplay of the aforementioned drivers would provide the impetus. A stable government at the Centre and its emphasis on increased policy support to investments and simplifying the regulatory and approvals regime, which would continue to enhance economic growth. The RBI has cut interest rates is likely to do so again later in the year, if the rate cut continues it would reduce EMIs for customers and would have positive impact. The implementation of the Real Estate Regulation Bill will instill further confidence in prospective buyers. Specific drivers would be unlocking of land for residential developments after a long hiatus in Delhi (through land pooling and relaxation in land use conversion), progress of key infrastructure and most importantly, developers will have to offer attractive value propositions to buyers, leaving enough value on the table for them, so that their investments yield the desired returns.

Outside of Delhi and Mumbai, which city and which sector are you most bullish about over the next 12 months?

Bangalore’s residential and commercial are the sectors that I am bullish on, considering the city’s robust economic base, end user demand, low inventory overhang and vacancy.

GRI in association with The Property Times.in